Cayman Islands: Foreign Investment – Cayman Islands

The following interview was published in Lawyer Monthly in September 2015.

Continuing with our Legal Focus on Foreign Investment, Lawyer Monthly speaks to Don Ebanks, an Executive Director and the Chief Compliance Officer of DMS Offshore Investment Services.

Q: DMS is the worldwide leader in fund governance; how has the company become so successful in this industry?

DMS is at its core entrepreneurial and has pursued opportunities for innovation as well as direct business development for the last 15 years. DMS directors came through the 2008 financial crisis with a strong reputation for integrity and competence. Throughout this expansion from a small team to well over two hundred staff, a professional financial services firm ethos has been very actively cultivated. As such, DMS is the most process driven Fund Governance firm in the world. Observable, measurable and verifiable steps in the Fund Governance process, which are carefully documented in our database, are the basis for our Fund Governance Transparency Report ("FGTR"). The FGTR is a natural product of the right people doing the right work, but is only possible when we use the best systems and contemporaneously document a director's decision making process. We are now asked for these reports by auditors and investors and they are used as a basis for discussions with regulators and tax authorities regarding the substance of the independent director function and can be dispositive, especially with respect to tax domicile issues for investment vehicles.

Q: The company offers comprehensive Fund Governance, International Tax Compliance, AIFMD, Banking + Custody, Trust, Corporate, Outsourcing and Structured Finance solutions that support investments across a range of structures, and diverse investment strategies. Can you give me an example of some of these solutions?

We have recently advised clients on typical vehicles used in Luxembourg for private equity vs. more liquid funds and walked through in detail the options using our AIFM for such a stand-alone fund or a sub-fund on our fully hosted platform using top tier service providers with the formation documents, templates, service providers etc. already in place as well as previously approved service providers such as the administrator, depository, legal counsel, auditor, directors, registered office, MLRO and company secretary. Such a platform can be appealing as the approval process will be much shorter and time to market is critical in the alternatives space. In this process we are quite agnostic as we can support fund formation and operation in various jurisdictions, so we strive to understand the goals of stakeholders and present a suite of appropriate solutions.

Q: How complex are the regulatory frameworks which surround fund governance?

The direct and indirect regulatory issues have grown much more complex in just the last few years. The CIMA Statement of Guidance for Funds has codified many best practices, but as a consequence has articulated the expectations of the Cayman Islands regulator. The Directors Registration and Licensing Law subjects directors of regulated hedge funds to a fitness and probity test which includes disqualification provisions. Initiatives such as FATCA (and now the OECD Common Reporting Standards) and AIFMD mean that the board of a fund must be very aware of the basic issues in these areas. Failure to comply with FATCA (e.g. by having an IRS GIIN registration number) could lead to severe issues with counterparties. Improper marketing into the EU followed by losses suffered by the EU investors would very likely result in compensation claims against the fund and oversight failures regarding AIFMD compliance could lead to personal liability for the directors.

Q: DMS successfully operates more fund directorships than anyone else in the world, how does it manage to keep on top of ever-changing regulation in order to maintain this successful fund directorship management?

DMS certainly draws on our industry colleagues at legal and accounting firms to manage these challenges, but a key differentiator in the Fund Governance space has been our willingness to build capacity in key areas. We were a pioneer in FATCA and International Tax Compliance and our proprietary AIFMD solution is being used by large international banking groups. A practical and practitioner mindset, rather than an academic one, is then leveraged through our global firm. As a result we've been recognized as a top offshore advisory firm on regulatory issues.

Q: Is there anything else you would like to add?

An independent director is most valuable when issues are complex and/or contentious. Is your director skilled, knowledgeable and seasoned? Professional directors can, and should, be more than window dressing. As an investor or manager, you should be comfortable that this is indeed the case.

Download pdf version: Lawyer Monthly – Foreign Investment Feature – Don Ebanks

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